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External Analysis

External environment has impact on market gain and competitive advantage. Managers

can analyze external environment to gain opportunities and know the threats. PESTLE analysis

breaks down external environment into six groups: political, economic, sociocultural,

technological, ecological, and legal. Political factors affect firm’s business benefits and

decisions. For example, Tesla started selling cars to their customer directly through online

websites, because of strategy of Tesla being successful other car manufacturing companies

pursued for online marketing. Auto dealers created pressure on Tesla to prevent them selling

directly to customers and invoke traditional car selling. Political factors are like legal because

political pressure often results in change of legislation and laws. Economic factor affects firm’s

profitability and business behavior. Increase in growth rate increases the profit to the business,

employment rate increases, and firm gets more skilled employees. Change in the price of raw

material and labor cost are the driving factors for change in price of goods or services. For

example, apparels made in USA or Canada are more expensive than made in India, Bangladesh,

or other countries where labor charges are inexpensive. Currency rate fluctuation causes profit or

loss to the business solely depends on share market. Sociocultural factors including society’s

cultures, norms, and values affect business decision as some geographical area might have

certain community in majority. For example, a geographical area where Hispanic and Mexican

communities are in majority, the Mexican food business will run greater than American food

business. Technological innovations poses both opportunities and threat to the business. For

example, emergence of Tesla with their electric vehicles in the market, eventually lower the

market of the traditional cards. Most of the car manufacturing firms started producing their own

electric vehicles after the boom. Ecological or environmental factors creates an issue for
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traditional businesses and their manufacturing mills. More carbon emission leads to increase in

global warming. Google being carbon neutral since 2007 and aims to be carbon-free organization

by year 2030. Legal factors create threats to the organizations. For example, Walmart was not

able to extend their business in India because Indian judicial system did not allow them as they

will lower the local market and public income through it. Porter’s five forces helps to understand

the business position, competition, and competitive advantages. When new businesses enter, they

introduce relatively inexpensive products or higher quality products than that of existing

company products. Thus, entry of new firms poses existing firms to lower the price or increase

the quality of their product which leads to lower profit. Suppliers may exert pressure on the firm

to pay higher prices if there are not many suppliers for their raw material. The buyers/customers

may change the company products due to economic crisis or higher quality product of cheaper

cost of different firm. Product substitutes are major threat for firm to lose the market gain. And

lastly, rivalry amongst the business is most factors which leads firms to create innovative idea for

products as well as price competitive products for customers[ CITATION Fra21 \l 1033 ].

Graduate-Level Response

VW executives are responsible for checking the QA and QC of the software developed

that allowed environmental controlled emission of gases through their cars. The software was

developed to control nitrogen oxide emission to the environment to control greenhouse gases.

The software was turned on to while the government testing in the unit and turned off in the real

world. Which gives false data of greenhouse gas emissions. When government agencies find out,

they arrested six executives who were allegedly responsible for this scam. The legal legislation

formed by government are meant to be followed by executives because they are the leader of the
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organization. Leaders can influence employees to work on legal ethics from their work. Thus,

executives should be prosecuted for the scam of VW.

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References
Rothaermel, F. T. (2021). Strategic Management (5th ed.). New York: McGraw-Hill Education.